CHAPTER - 2

REVIEW OF LITERATURE
As mentioned earlier in chapter 1, to justify the need of the present
study, we have to review the literature which is the subject matter of this
chapter.There are various studies by various organizations & individual
scholars in this area covering one or the other aspect. These are as under:
I.

VILLAGE OR COTTAGE AND SMALL SCALE INDUSTRY

W.A. Lewis (1954)1 has strongly advocated the application of labor

intensive techniques of production to have a steady and smooth economic

growth. He opined that many important works can be done by human labor
with very little capital. Efficient labor could be used to make even capital
goods without using any scarce factors. In this sense, small scale and cottage
industry should be developed and promoted especially in an economy where
capital is scarce. He recommends the use of capital intensive techniques only
when they are necessary.
According to the Industries Committee Report (1955)2, popularly
known as Karve Committee Report, since a substantial number of the
unemployed and underemployed belong to the village and small industries
group, setting up of small scale and village industries will provide
employment to them in occupations in which they have been traditionally
trained and for which they possess equipment. The committee realizes the
necessity of introducing better techniques in the village industry, so that they
can keep pace with the progressively expanding economy and do not become
unsuitable tomorrow.
Khadi and Village Industries (1975)3 gave a gloomy picture of these
industries as a source of employment in industrialization. The report shows
25

that the "compounded rates of growth of employment in these industries, as

compared to growth of output, are very meager."
Dasgupta (1983)4 has recommended the establishment of small scale
and cottage industries in the North-Eastern region of the country. He
suggested that if labor intensive small scale industries are established, they
will provide some alternative economic opportunities to the people in the hill
areas of the region as the improved cultivation with multiple cropping is a
difficult proposition in this area.
Lianzela's (1994)5 work is based on the economic development of
Mizoram as a whole. He focused on various sectors of the economy and their
development purely from the economic point of view. Although he put
valuable suggestions and policy recommendations for the future development
of the state, he did not give any specific strategy for the development of small
scale and cottage industries in the state.
According to Aruna Devi (1995)6 industrial development is a pre
condition for the economic development of an underdeveloped region. She is
of the opinion that industrial development in general and development of
small scale and cottage industries in particular is bound to play an active role
in connection with the economic development of an underdeveloped state,
like Manipur.
Rualkhuma (1997)7 focused on the industrial development of
Mizoram, which is indeed a geographical interpretation of the existing
bottlenecks and problems rather than economic analysis. He laid stress on the
development of small scale and village industries to boost the over all
economic development of the region. His work did not give any concrete
solutions on the existing problems and drawbacks of industrial development
from economic perspective.
26

Purkayastha (2001)8 in his study "Development Banking and

Industrialisation" examines how far industrialization has been taking place in
Sikkim. The study is based mainly on the Secondary data collected from the
SIDICO, IDBI and SIDBI, and covers a period of eighteen years, i.e., from
1977-78 to 1994-95. The study reveals that SIDICO laid a solid foundation
for village and small scale industries in this infant state. However, many small
scale units are in morbid condition. The overall performance of the SIDICO is
not satisfactory. The study recommends that the corporation must launch an
efficient recovery drive, exerting all possible social and legal pressures.
II. SMALL SCALE INDUSTRY:
A study of UNIDO (1969)9 based on evidence from a number of
developing countries, indicates that ''small enterprises with a lower level of
investment per worker tend to achieve a higher productivity of capital than do
the larger, more capital intensive enterprises".
Pande (1983)10 explained few causes that attributes to the slow growth
of small scale industries in hill areas. The small scale industrial units in the
village area and suburban localities suffer from a considerable degree of
technological obsolescence, inadequate of raw materials, dearth of marketing
channels, unawareness of market situation in urban centers, poor credit
facilities and the shortage of skilled labor and power supplies.
According to Vepa (1983)11 the growth of small industries is
interrelated with the growth of resources, which, in turn, leads to accelerating
the economic growth of the country. The author suggests that the small sector
should be developed from the grass root level. Proper development of smaller
units strengthens the economy in a big way by facilitating the optimum use of
raw material, infrastructural facilities and human resource, apart from being
instrumental in the development of backward areas.
27

Agarwal (1988)12 has emphasized that the importance of small scale

and cottage industries is more in the absence of large and medium industries
in the North-Eastern region. He mentioned some of the specific exogenous
factors leading to bad industrial health in the region. These are absence of
effective industrial policy and adhocism in Government decision at the state
level as well as industry wise decisions, prolongation of gestation period due
to the infrastructure deficiencies and weakness of supporting services,
uncertainties and shortage of essential raw material and construction material
supplies, defective sales tax regulations, high power tariffs and transportation
costs etc, defective capital base and operational plans, shortage of working
capital, non-availability of trained and experienced personnel and old
techniques of production and lack of quality control.
Ganguly (1988)13 studies the performance, policies, problems and
prospects of the small scale industrial sector. Study reveals that the sector
suffers from various problems such as inadequacy of raw materials and
financial assistance, lack of effective marketing and encroachment on the
areas reserved for SSIs by large and medium sectors, conscious efforts of the
govt. to promote the small sector not with standing. But the author maintains
the view that the faster growth of the medium and large scale sectors
considerably.
Balu (1991)14 examined the overall financing of small scale industries
and also the contribution of the financial institutions and banks in financing
small scale units. The study is mainly based on primary data and covering a
sample of 150 small scale entrepreneurs spread over Madras city. It has been
found that the entrepreneur with non business background relied heavily on
external sources like banks and other financial institutions. They face
problems like delay in sanction and disbursement, inadequacy of loan,

28

insistence for collateral security, impersonal and non cooperative attitude of

the officials. A single agency approach has been recommended as a solution
to these problems in the study.
Bhave (1991)15 has analysed the role of Maharastra State Financial
Corporation (MSFC) in industrial development of the State. He observed that
the assistance given to developing and backward areas accounts for 73
percent which goes to SSI.
Gibson (1992)16 describes the role of financial information in the
Austrian model, as decision makers do not need financial information to help
them determine if their capacity to generate future profit has been impaired.
There is no assumption that financial information has any other role. It is not
assumed that future oriented information will be used in evaluating the means
by which desired ends can be achieved. Austrian economics offers no
opportunity to prescribe a use for information in the decision making process.
Nayak Committee (1992)17 deals with the question of adequacy and
timeliness of credit made available to small scale sector. It further observed
that small scale sector was getting working capital to the extent of 8.1 percent
of its annual output which was less than the normative requirement of 20
percent.
Sandesara (1993)18 studied the performance of SSIs producing
reserved items collecting data from the second census conducted by the
Ministry of SSIs. The study examined the null hypothesis that the SSI firms
producing reserved category items should perform better than the SSIs
producing non-reserved items. The study result revealed that capacity
utilization in 1987-88 and aggregate change in production in 1987-88 were
both lower for reserved than for unreserved items.

29

Subramanian and Pillai (1994)19 in their article reported a survey of

small industries in Kerela and compared their performance with the small
industries in other major states and with all India average. The poor
performance of small industries in Kerala is attributable to low capacity
utilization,

low

factor

productivity,

unfavourable

usage-productivity

relationship and industrial 'sickness' following severe financial and marketing

problems. The performance of the small sector in Kerala could be improved
by changing growth strategies which may enable them to reap economies of
scale and lead to sectoral linkages and agglomeration.
Sharma and Diwan (1994)20 provided a comprehensive insight into
the small scale sector of India. Author found that over the years, this sector
has exhibited a tremendous amount of resilience and ability to diversify and
improve its performance and further, the process of liberalization and market
reforms have provided tremendous opportunities for growth of small
enterprises. Further in the study, to assess the response of SSI sector and its
ability to reposition itself in the changed business environment, a SWOT
(Strength, Weakness, Opportunity, Threat) analysis of small scale sector was
carried out. The author argues that with the opening up of the economy, there
is a big opportunity for SSIs to enter into profitable relationships with large
and medium units.
Rudramurty (1995)21 in his work entitled "Institutional Finance for
the Development of small scale industries in Karnataka", applies both micro
arid macro approaches. The major objective of this study is to evaluate the
impact of institutional finance on industrial development. The study reveals
that industrial development without the development of SSIs is incomplete as
the employment of abundant man-power and the exploitation of abundant
resources are not possible without the growth of SSIs. Financing of SSIs to

30

the turn of 69% is done by Karnataka State Financial Corporations while the
contribution of the commercial banks is restricted to 13% only.
Chattopadhyay (1995)22 with the help of primary and secondary data
discusses the causes and solutions of industrial sickness in India. By using
various mathematical and statistical tools like financial ratios and multiple
regression, it has been observed that sick industrial units have been suffering
from managerial inefficiency, demand recession, obsolete plant and
machinery and labor problems. Sufficient financial aid from financial
institutions is not forthcoming. Policies framed by the govt. need to be
implemented strictly to being about improvement in the situations.
Jain (1996)23 observes that liberalisation has, compelled Indian firms
to improve product quality, internal productivity and reduce costs through a
combination of organisational restructuring, downsizing, process reengineering and computerisation. But all this will not suffice. Much more
needs to be done. Indian firms should use innovation, entrepreneurship and
information technology in strategy and corporate philosophy to cope with
growing challenges in the globalised market.
Nath (1996)24 performed inter-state comparison of relative efficiency
in small scale industry of India using the data culled out from the reports in
second all India census of small scale industrial units conducted in 1988-89.
The study comes up with the results that in Maharashtra and Madhya Pradesh,
most of the small scale industries are relatively more efficient than in other
states. However, in Andhra Pradesh, Bihar, Kerala, Tamil Nadu and West
Bengal they were relatively less efficient.
Bhatia (1997)25 in his study addresses to the impact of New Economic
Policy on the industrial development of Punjab. In 1966, the share of
manufacturing sector in state's income was barely 9 percent but after mid
31

eighties it started increasing. The picture of industrial sector in respect of

employment even in the post-liberalization period is very dismal. SSIs being
labor intensive, could contribute significantly to tackling the problem of
unemployment. Small sector being less capital intensive and more
employment. Generating must be promoted to fight the ever swelling problem
of unemployment.
Sidhu (1997)26 in her study concentrates mainly on chemical industries
in the states of Gujrat, Maharastra and Tamil Nadu and the study is divided
into four parts. Part -I reveals the growth of chemical industries in the selected
States vis-a-vis the whole of India, Part -II examines partial and total factor
productivity, in Part III the output elasticity marginal productivity of factor
productivity and returns to scale are estimated and Part IV is devoted to
estimation of elasticity of substitution. The trends of TFP are measured
through four different methods viz (a) Direct method (b) Kendrick Method (c)
Solow Method and (d) Divisia Method. The analysis indicates that the
chemical industry in Gujrat and Maharastra is experiencing increasing returns
to scale while in Tamil Nadu this industry is experiencing decreasing returns.
Justus (1997)27 points out that small scale industry plays an
important role in the economic development of a country. The promotion of
small scale industry is of paramount importance in any industrially backward
region or country. The small scale sector has certain inherent advantages like
low capital intensity, high employment generation, more equitable
distribution of income and wider dispersal of industries. So, small scale sector
needs to be given more incentives and financial assistance to enable it to
come out of 'red' or 'sickness'.
Kumar (1997)28 brings out that the small scale sector has played a
vital role in the overall economic development of a country like India where
32

millions of people are unemployed or underemployed and most of the

entrepreneurs are capable of making only small investment. The small scale
enterprises are also considered an important instrument for promoting rapid
industrial growth by providing greater employment opportunities, reducing
regional disparities and removing economic backwardness of the rural and
underdeveloped areas of the country. The study concludes that the small scale
sector performed extremely well in all spheres of industrial activities i.e.
production, investment and export during the period from 1973-74 to 199394.
Abid Hussain Committee (1997)29 reiterated the recommendations
of Nayak Committee in general and recommended introduction of innovative
finance and made a case for higher earmarking of credit for tiny sector units
among small scale units.
Gangopadhyay and Wadhwa (1998)30 analyse the changing pattern
of labor productivity labor costs and TFP in Indian industries over the period
from 1973-74 to 1993-94 at the disagreed level. They divided the entire study
period into two sub periods, 1973-84 and 1984-94. It was found that the
increase in capital intensity was accompanied by gains in labor productivity.
The rate of growth of labor productivity was consistently higher in the second
sub-period in all industries. The rising labor productivity, capital deepening
and falling labor costs were accompanied by a rise in the rate of growth of
employment and wages. Total factor productivity growth (TFPG) was
estimated by two methods, the growth accounting approach and the
production function approach. The analysis of estimates of TFPG obtained
from Translog index showed that the front-runner in the TFPG performance
was the export-driven industries. The results of panel estimation of the
Translog production function with and without industry effects showed: (1)

33

TFP grew at the rate negative two percent during the period 1973-74, and (2)
technical change was not Hicks-neural, but capital augmenting. The author
mentioned that their results are in contrast to the results of the Ahluwalia's
(1991) in the following respects; (i) the present study confirmed a labor
saving, bias in technical change while the Ahluwalia's study found a capitalsaving bias (ii) Ahluwalia found a structural break in TFPG since 1982-83
while no such structural break in TFPG from 1980 to 1992 was noticed.
Neogi and Ghosh (1998)31 tries to see the impact of liberalization on
the performance of four selected industry groups, namely, (i) chemical, (ii)
textile, (iii) non-metallic mineral products and (iv) electrical machinery, by
using firm level data for the period between 1989-94. The performance
indicators chosen to verify the impact of economic reform on the firms were
growth of value-addition, capital intensity, labor productivity and total factor
productivity. The results indicate that productivity growth and efficiency
levels have not improved as per expectations, during the post reform period
and the distribution of efficiency is skewed. The level of technical efficiency
for all the industries was found to be very low and no significant
improvement was observed in this level during the post reform period.
Sidhu (1998)32 in her paper examines the applicability of Verdoorn's
law vis-avis SSIs in India. Verdoorn's law states that over a longer period
there is a fairly constant relationship between the growth in output and the
growth in labor productivity. The law concludes that average values of
elasticity of production with respect to output is around 0.45 which may vary
within a broad range of 0.41 to 0.57. For study, both time series and cross
sectional techniques are used and the data have been arranged for the period
between 1973-93. The study provides a mix response to the applicability of
the law to SSIs. Time series analysis confirms the applicability of the law to

34

SSIs. Time series analysis confirms the applicability of the law for the period
between 1981 - 1993 but does not confirm it for the period between 1973 1981. On the other hand, cross sectional analysis confirms the applicability
only after taking into account the growth in output and the growth in the
productivity of labor.
Narashimham Committee (1998)33 observes and suggests that State
financial corporations, and State industrial development corporations set up in
different states have played a significant role in providing credit, finance and
escort services to the small and medium industrial units. However, the
financial health of most of the state level institutions leaves much to be
desired. The recovery rate of SFC's averages nearly 37 percent of demand and
the NPA's constituted 39 percent of the loan portfolio of the SFC's. This needs
correction as a first step towards the eventual disinvestment by the state.
There is also a need for restructuring of the all state level institutions into a
single state level financial institution.
Rao and Chandershekar (1998)34 in their paper try to identify the
problems faced by handloom weavers and analyse the various schemes for the
upliftment of the handloom sector. On reviewing the schemes, the authors
maintain that the purpose of the schemes has not been achieved, as the
economic condition of the weavers have remained abysmal as ever before.
Competition from the organised mills and powerlooms have further worsened
the situation of the industry. The percentage share of handlooms in the total
cloth production declined from 35-40 percent 10 years ago, to around 20
percent. Globalisation too, has contributed to the miseries of handloom
industry. Inspite of all this, the authors are of the opinion that the Indian
handloom products, because of their natural fibre base, unique design, texture
and aesthetic appeal have tremendous potential if their exports one boosted
and incentivized.
35

Khanka (1998)35 in his study observed that the development of

small scale industries in Assam is at low level because of inadequate
infrastructural facilities, problems of finance, marketing and insurgency.
Therefore,

for

industrial

development,

Government

should

create

infrastructural facilities like transport, communication, power, energy etc.

Moreover, state level techno-economic survey should be carried out to
explore possibilities for developing specific industries successfully. Local
people should be motivated to promote entrepreneurial spirit in the region.
Government should take strong initiatives to curb insurgency in the region to
make congenial climate for industrialization.
Anbumani, V. and Ganesan S (1999)36 on the basis of census data
of small scale food product industrial units of Coimbatore district, estimated
CES production function with the objective to estimate substitution
parameter, returns to scale and operational efficiency. Study reveals that out
of 14 sub groups, most of the industrial units show increasing returns to scale
and the result are statistically significant. Authors identify the reason for high
capital output ratio as high capital intensity. Therefore, they have suggested
the induction of more labor force to increase the capital productivity.
Kaur (1999)37 in her "Operational Performance of State Financial
Corporation (A case study of PFC)", carries out the study into two sections:
growth of sanctions and disbursements, purpose-wise, organisation-wise and
sector-wise analysis of assistance, has been made in section-I and operational
performance of PFC has been evaluated from beneficiaries' view point in
section-II of this study. It is observed from the study that the purpose wise
analysis of the assistance by the PFC reveals wide gaps. Rationalization,
modernization and rehabilitation etc., have remained neglected inspite of the
fact that these aspects of industrialization are very important in the changing
economic scenario.
36

Neelamegam and Inigo (1999)38 in their study discussed the

financial aspects of the SSIs. Three districts of Tamil Nadu, SSIs are
contributing in providing employment opportunities, increase in production. It
has been found that managerial inefficiency is the most serious problem. The
study made empirical analysis especially for textile & engineering goods
industries and observed that mere recommendations and enactment of policies
are not enough unless proper implementation is ensured. Therefore,
Government should take necessary steps as it is highly desirable to tackle the
problem.
Agarwal (1999)39 mentioned that the entrepreneurs of small scale
industries are generally lacking in knowledge of various aspects as how to set
up an industry. Owing to the predominance of agricultural background of the
region, the infrastructure for industrial development has not developed
properly. Apart from lack of industrial tradition and managerial class, the
state is handicapped by difficult terrain and disturbed socio-political
conditions are also adversely affecting industrialization in the state.
Rajendran (1999)40 made a study to examine the various kinds of
assistance given to small scale industries with the prime objective of
identifying institutional assistance for the development of small scale
industries and the problems faced by these industries in Tiruchirapalli district
of Kerela. He concluded that the greatest problem faced by the small
entrepreneurs was no availability of adequate financial assistance. Moreover,
the small enterprises also face problems relating to the acquisition of raw
material, marketing of products and technological and administrative
problems. There were complicated procedures in availing loans from financial
institutions and there is no coordination between the promotional institutions
and government agencies.

37

Ramesha (1999)41 discusses the state-wise variation in credit

advancement to SSIs by Scheduled Commercial Banks (SCBs). Exponential
Function has been used to estimate the compound growth rates while
coefficient of variation for measuring disparity. The study reveals that credit
advancement by commercial banks to the sector has increased over time.
However, this growth is does not match the needs of the sector. It further
reveals that inter-state disparities would have been acceptable if these had
been in accordance with the state wise contribution of SSI sector in the total
output. But the study shows that major contributing states like Madhya
Pradesh, Bihar and Orissa are credit strapped while Maharashtra, West
Bengal, Karnatka and Punjab take away greater chunk of credit supply though
their contribution in total output is comparatively low. These disparities need
to be addressed.
Dangwal and Negi (1999)42 in their paper examined the
"institutional Finance and Industrialization (A case study of UPFC)". In this
paper an attempt has been made to analyze critically the financial assistance
sanctioned and disbursed by the Utter Pradesh Financial Corporation in its
various financing schemes. The study reveals that the bulk of financial
assistance has been sanction and disbursed by the UPFC to small scale in
Industries. The study reveals that the total finance sanctioned showed an
impressive rise but the magnitude of increase in disbursement was less
pronounced.
Kar (1999)43 discusses the problems faced by the SSIs and lending
institutions, and make an attempt to find probable solutions in her empirical
sample study of 106 small scale industries of Orissa. The study aims at
assessing the repayment capacity of SSI units with the help of financial ratios,
using a discriminant function, and on the basis of findings concludes that

38

units with very high working capital-sales ratio are likely to fail. The author
explains that overestimated sales and underestimated costs result in lossesand, therefore, many units fail to repay loans while some others have no
intention to pay. The accumulation of expertise and experience in lending and
further improved screening and effective supervision procedures can reduce
the losses of the lending institutions to the SSIs.
Mohanty and Kar (1999)44 in their paper try to analyse the impact
of credit rationing undertaken by banks on the functioning of SSI units
financed by them. The paper essentially confirms, on an empirical basis, that
credit constraints from banks affect the overall well being of the SSl units so
financed. Investment in fixed assets without proportionate working capital
provision adversely affects the functioning and profitability of the small units.
Kumar, Sunil (2000)45 explore the effect of various variables in
explaining the Inter-State differentials in total productivity growth of Indian
Manufacturing sector. The industrially developed states experienced either a
decline or a low growth in TFP during 1969-95. The deregulatory policy
regime imparted a positive effect on the TFP growth at national and state
levels during 1980s. The most recent phase of liberalisation since 1991 has
failed to make any significant dent on TFP growth pattern of Indian
manufacturing sector. Average Annual growth rate of TFP fell from 2.146
percent for pre-liberaiisation period to -.967 percent during liberalization
period in the case of Haryana state while in the area of Punjab it has increased
rapidly.
Paul and Ramanathan (2000)46 in their paper examine the two
main objectives, i.e., to trace out the sources of industrial finance in India and
to analyse whether there is any structural shift in the industrial production as a
result of economic reforms. The study is based on the secondary data, and to
39

analyse the result,-a log-linear regression equation is estimated through

Ordinary Least Square Method. From the estimated results of the regression
equation, they conclude that the economic reforms have not brought spurt in
industrial production. This calls for increased investment, which has to be
focused for sustained growth in industrial sector. It also reveals that bank
credit constitutes two thirds of the total credit to the industrial sector and still
continues as an important source of finance for small scale industries.
Prasad (2000)47 observed that the timely an adequate availability of
credit is crucial input for all kinds of production including that by small scale
enterprise. The right amount of financial assistance is a sine quo non for the
growth of small scale enterprises.
Kulkarni (2001)48 in his paper "Financial Structure for Backward
Area Development" examines the credit flow of the financial institutions
including the banking sectors. The study reveals that the three major financial
development institutions viz, IDIBI, IFCI and ICICI are providing a major
share of assistance for promotion and development of large and medium
industries in specified backward areas, due to better infrastructural facilities
available in the backward districts of the better developed states, viz Haryana,
Punjab, Gujrat and Kerala etc. This study also reveals that during the last
three decades or so, SFC's have contributed substantially to investment
activity in the industrial sector especially the small scale sector.
Kumar (2001)49 endeavours to analyse regional variations in
technical efficiency of Indian manufacturing sector using the method of SFA.
The results revealed wide variations in the technical efficiency of
manufacturing sectors of different states. The highest level of technical
efficiency has been observed in the manufacturing sector of Maharashtra. The
states of Maharashtra, Karnataka, Gujarat and Haryana operate close to
40

maximum technically feasible production levels since their manufacturing

sectors have realised more than 90 percent of their technical potentials. In the
remaining 11 states including the industrially developed states of West Bengal
and Tamil Nadu, the level of technical efficiency has been observed to be less
than 80 percent. It has been found that the mean technical efficiency for 15
states was 77 percent.
Vasudeva (2001)50 discusses the role, challenges and opportunities
for small scale sector under WTO regime. The small scale industry in India
must brace itself for the challenges ahead or there will be dislocations in some
of the highly protected sectors. The concern of the small sector enterprises
development in India has generally been expressed in terms of parts rather
than whole. Technology, credit, raw materials, etc. have often been
highlighted as problem areas. It would not make any sense to continue with
reservation of product lines alongside free imports. The government's
continuous reluctance to do away with the reservation of items for SSI sector
is unwarranted.
Eresi (2001)51 In his empirical study through random sample survey
of 70 SSIs in 14 categories of Bangalore tries to find out the causes of
industrial sickness and industrial failure. Author discovers that personnel
related problems constituted one of the important reasons for failure, while
others being lack of managerial experience, financial inadequacy, marketing
problems and so on. Survey reveals that 92 percent of the sample units did not
have personnel departments.
Choudhari (2002)52 with the help of two-digit and three digit level
NIC fata for manufacturing sector, using deflation and estimation of fixed
capital stock, focused on the impact of India's economic reforms on its
industrial structure and productivity, the study reveals a disappointing overall
41

performance of both growth of output and of employment. Author however,

concludes that the situation is not the result of endogenous factors, but has
arisen due to the framework of policies being followed under ongoing
economic reforms. So the study suggests that efforts should be made to ensure
that the demand is high enough for more output to be produced, more people
to be employed and poverty to be reduced.
Ganesan and Anbumani (2002)53 in their study examine growth,
marginal productivities, marginal rate of substitution and factor substitution in
small metal products industry in Coimbatore district. Estimation of CobbDouglas production function reveals that out of 17 categories of industries, 9
product groups were indicating increasing returns to scale and most of the
industries were capital intensive in nature. But here it is to be noted that
marginal productivity of labor was higher than capital and even then
entrepreneurs were employing more capital. Authors find that labor is cheap
but argue that its management is very costly.
Kumar (2002)54 attempted to look into change in the growth
patterns, levels of efficiency and technological changes which textile industry
observed overtime. The capital efficiency in the industry has been
deteriorating overtime as is reflected by the rising capital output ratio. The
textile industry continues to bear the pains encountered during the macro
adjustment process which call for changes in product mix as well as
organisation in the face of changing demand and supply factors in the
domestic market in particular and international market in general.
Rajesh and Duraisamy (2002)55 analyze the effect of economic
reforms on Indian unorganized sector in general and on the manufacturing
sector of Indian states in particular. The study identifies that one of the major
problems confronting the Indian unorganized manufacturing sector is to
42

increase the level of production through improvement in productivity, leaving

the employment-generation capacity of the sector untouched. Further, in
productivity growth and efficiency aspects, a wide gap is noticed across the
Indian states. A subsequent regression shows that there is a tendency towards
convergence in the productivity growth rate across the Indian states. It
suggests that technological upgradation needs to be prioritized if the output of
the unorganized sector has to be improved.
Goel (2002)56 has diagnosed the problems of SSIs and talked about
excellence models for management of SSIs in India. The products of the SSIs
would be popular only if they satisfy the essential need of the customer
(foreign as well as domestic) and is utilitarian. Glamour alone can not be a
substitute

for the basic requirements of Need, Affordability and Worth

(NAW approach) of the product. To adopt and accept the normative approach
to HRD in SSIs, it is essential to understand SIMPLE model of HRD
consisting of six human development activities such as Spiritual development,
Intuition development, Mental level development, Physical Development,
Love-yourself

attitude

development

and

Emotional

quotient

(EQ)

development.
Jain (2004)57 analyses the growth of small scale sector, government
policy towards small scale sector along with problems faced by them due to
globalisation in the pre and post liberalisation periods. Since small scale
industry constitutes a very important segment of Indian economy. New policy
initiatives since 1991 by the government have caused a shift in focus from
protection to promotion. In the post-reforms period the government has taken
a number of steps including partial de-reservation, change in investment
limits, and facilities for foreign participation, establishment of growth centers,
marketing assistance and incentives for quality improvements. The study

43

reveals that the problems of small scale sector are multi-dimensional

especially in the liberalised environment.
Nikaido (2004)58 attempts to present some policy implications for
the better development of small scale industrial sector which after the
liberalisation of Indian economy in 1991, was recognised as a growth engine
of the economy. The technical efficiency of this sector was measured by using
a stochastic production frontier model. The industry state-wise data for
industrial sector were drawn from the Second All India census of small scale
units. Variables such as production, employment, fixed investment, capacity
utilisation and the number of units were utilised. It is observed that due to
competition with large industries and foreign firms, small scale industry has
not had the incentive to grow into larger units, and has therefore ignored the
quality of its goods. Moreover, agglomeration of firms was found to be
positively affecting the measure of technical efficiency, while the firm size
had a negative effect on it. Thus, the supporting policy itself might have
prevented the potential capacity and innovative nature of small scale
industrial sector. It is suggested that for the promotion of clusters, the
government needs to support infrastructure around clusters and technological
upgrading.
Bala Subrahmanya (2004)59 highlights the impact of globalization
and domestic reforms on small-scale industries sector. The study states that
small industry has suffered in terms of growth of units, employment, output
and exports. The Researcher highlights that the policy changes have also
thrown open new opportunities and markets for the small-scale industries
sector. He suggests that the focus must be turned to technology development
and strengthening of financial infrastructure in order to make Indian small
industry internationally competitive and contribute to national income and
employment.
44

Rajyalakshmi (2004)60 reviews the productivity awareness among

small CL scale industrial units in Visakhapatnam district of Andhra Pradesh
at micro level and explores how small scale entrepreneurs they measure
productivity in their units. The study is based on primary data collected by
using structured schedule through personal interviews. A sample of 200 small
scale industrial units was selected for the study and found that chemical units
were more capital intensive as compared to food and agro units. The study
concludes that success in small industry will be best achieved if the
productivity culture is clearly understood by all the employees.
Latha (2005)61 highlights that small scale industrial sector has
acquired a prominent place in the socio-economic development of the country
during the last five decades. It has been assigned an important place
commensurate with its potential for employment generation, dispersal of
industry in rural areas and export promotion. To overcome the problems of
small scale sector, government must provide additional facilities, schemes,
incentives and encourage innovative activities of entrepreneurs for the
development of this sector during the era of globalisation and competition.
Mahambare and Balasubramanyam (2005)62 analyses the impact
of trade liberalisation on Indian manufacturing sector. The study evaluates the
firm level technical efficiency in India since 1991 reforms by estimating
Cobb-Douglas production function for thirteen manufacturing sectors. The
study reveals the mixed impact of 1991 reforms on the selected
manufacturing sector. Average technical efficiency of firms has increased in
eight out of thirteen sectors studied. Improved access to imported technology
in the post-reform period seems to have had a positive impact on efficiency.
Although foreign owned firms continue to be the most-efficient, Yet their
advantage in technical efficiency seems to have declined in the late 1990's.

45

Technology acquisition, efficient utilization of resources and infrastructure

development are considered some of the factors which possibly contribute to
the increase in total factor productivity growth.
Kumar (2006)63 estimates the trends in growth of total factor
productivity of Indian chemical industries at the sub sectoral level. The study
covers the period of 22 years from 1980-81 to 2001-02. The total factor
productivity growth (TFPG) is estimated using Translog model with three
inputs, viz. labor (L), capital (K) and the intermediate inputs (R) raw material
consumed. The factor productivity growth rates are computed for the five
major sub sectors of Indian chemical industries. The results shows that the
impact of economic reforms on the productivity levels of an industry at the
aggregate and sub-sectors level do vary significantly. While the net impact of
the reforms process on total factor productivity growth was found to be poor
at the aggregate level, the sectors: drugs and pharmaceutical, paints and
varnishes, basic chemical and dyes and dyes stuff industries greatly benefited
from the liberalization process.
Mishra (2006)64 in his study highlights the working of small scale
industries in Orissa during the years 1996-97, 1998-99 and 2003-04. The
period witnessed policy changes at different levels, which might have affected
the working of manufacturing sector in general and manufacturing small scale
industrial units in particular. The study is based on two benchmark studies
conducted on the performance of the small scale industrial manufacturing
units in five small industrial clusters in Orissa. The performance of small
scale industrial units has been assessed by fitting the Cobb-Douglas
production function for four financial years. Most of the units taken were raw
material intensive and a few labor intensive, depending upon the type of
product categories. Further, it was observed that no significant growth took

46

place in the factor productivity in any of the product categories over the two
periods of time. The incidence of closure of these units in Orissa was found to
be very high and the main reasons for the sickness and closure of small scale
industries in the state were lack of demand, tax problem, competition in local
markets, financial problems and attitude of the entrepreneurs.
Rathod (2007)65 evaluates the impact of globalisation on small scale
industrial sector and finds that this sector has exhibited a striking export
performance and shows that export has grown up-to double digits for the last
ten years. The study concludes that both opportunities and challenges were
raised as a result of globalisation on Indian Industry as a whole and the small
scale sector in particular. Author suggests that there is need for simplified
legal and regulatory framework, good governance, sufficient and accessible
finance, suitable infrastructure and competitive environment for the
development of this sector.
Lozi (2008)66 examines the role of small scale industry in the
economic development of Jordan and finds that growth of small scale industry
in terms of employment, production and sales has increased due to
globalisation and domestic liberalisation, but not as planned. Therefore, small
scale industry should be encouraged to make a sustainable contribution to
national income, employment and exports. Further, author makes some
recommendations for the development of this sector; establishment of
government centers in all districts of Jordan to provide the needed services
and facilities to small scale industry. The author identifies marketing as one of
the major problems of the small scale industries in Jordan.
Suresh and Shashidhar (2009)67 have conducted a study which
highlights the importance of small scale industries and its role in economic
development in the era of economic reforms and observe that significant
47

contribution has been by this sector in employment generation as well as rural

industrialisation. It has also been noted that under the changing economic
scenario, the small scale sector has the opportunities to explore through cost
effectiveness, improving quality of the product and diversifying the
production process. However, the challenges can be confronted by enhancing
competitiveness at both intra- and international levels.
Bargal et al. (2009)68 examined the causal relationship among the
three variables GDP, SSI output and SSI exports and also have compared the
performance parameters of SSIs in the pre and post liberalization era. The
study found that the annual average growth rate of different parameters of
SSIs have declined in the period of nineties vis-a-vis the pre-reform years.
There is an absence of any lead-lag causal relationship between exports and
production in small-scale sector and GDP of Indian economy.
Gupta (2009)69 has studied the future prospects of small scale
industrial sector of Punjab by using Auto Regressive Integrated Moving
Average (ARIMA) model through Box-Jenkins to generate forecasts
regarding variables of small scale industrial sector of Punjab. He expects that
the number of units and employment would probably grow at a slower pace as
compared to investment and production. The forecasts have depicted a bright
picture ahead but with low scope for employment opportunities. These
forecasts can provide Government and policy makers a direction to design
policies accordingly to push up growth in this sector. Further, author suggests
that drastic changes are required so far as industrial policy of Punjab is
concerned and Punjab government should announce package of incentives not
only for existing industrialists but also for new venturists.
Kumar (2009)70 in his study examines the growth pattern and
productivity trends of small scale electrical machinery and parts industry in
48

Punjab and finds that despite the introduction of liberal policies, the number
of units, fixed capital investment, direct employment and production have
failed to show encouraging results. A massive decline in CAGR of the
liberalisation period was observed for a number of units and employment.
Clear deceleration was noticed in the growth of the other two variables
production and fixed capital. Partial productivities of labor and capital have
increased significantly, capital output ratio has fallen drastically and capital
intensity has registered insignificant growth during the overall period of the
study. Author suggests that the state administration should put in place a
healthy, congenial and investment friendly policy and regulatory framework
so that the small-scale sector in general, and the electrical machinery and parts
industry in particular, may flourish in this fast changing competitive and
globalised business environment.
Bhavani T.A. (2010)71 highlights the issue of quality employment
generation by the SSIs and negates the short term attitude of increasing the
volume of employment generation compromising with quality. The author
argues that employment generation by the SSIs may be high in quantitative
term but very low in quality. Technological upgradation would enable the
small firms to create quality employment improving remuneration, duration
and skill. This structural shift may reduce the rate of employment generation
in the short run but would ensure high-income employment generation in the
long run.
Arora (2010)72 examined capacity utilization, technical efficiency
and total factor productivity growth in Indian sugar industry using the data for
31 years spanning over the period 1974-75 to 2004-05. The major cause
observed for such amount of technical inefficiency is managerial technical
inefficiency. The analysis of TFP growth reflects that the technical progress is

49

major source of output growth in Indian sugar industry during the postreforms period. The analysis of impact of economic reforms delineates a
precipitous decline in capacity utilization and technical efficiency during the
post-reform period in comparison to the pre-reform period.
Sanchita (2010)73 observed that management problems and
constraints experienced by women entrepreneurs in Small Scale industry of
Haryana including lack of confidence, problems of finance, working capital,
Socio-cultural barriers, production problems and inefficient marketing
arrangements. To solve the management problems of for women
entrepreneurs in Haryana specially in Small Scale sectors, there is a strong
case for simple and systematic procedures at all administrative levels for
ensuring the planned benefits to the needy women entrepreneurs for optimal
utilization without underutilization and wastage of scarce financial resources.
Subrahmanya Bala (2011)74 has probed the impact of globalization
on the exports potentials of the small enterprises. The study shows that share
of SSI export in total export has increased in protection period but remain
more or less stagnated during the liberalization period. However, the
correlation co-efficient in liberalization period is higher than that of protection
period suggesting that the relationship between the total export and SSI export
has become stronger in liberalization period. Thus, the current policy of
increasing competitiveness through infusion of improved technology, finance,
and marketing techniques should be emphasized.
Singh et al, (2012)75 analyzed the performance of Small scale
industry in India and focused on policy changes which have opened new
opportunities for this sector. Their study concluded that SSI sector has made
good progress in terms of number of SSI units, production & employment
levels. The study recommended the emergence of technology development
50

and strengthening of financial infrastructure to boost SSI and to achieve

growth target.
III.

SMALL AND MEDIUM ENTERPRISES:

Gibson & Wallschutzky (1992)76 interviewed 12 Australian SMEs

concerning the role of accounting information in their strategic and

operational decision making, indicate that 'Also necessary is a greater
understanding of the role of accounting information has in managing small
organizations and its association with performance.
Gupta (1996)77 examined the operational performance of HFC. This
study reveals the fact that HFC is playing a vital role in financing and
nurturing small and medium scale industrial units in all of the districts of the
state, to remove regional imbalance in the industrial growth.
Singh (1998)78 highlighted that the small scale enterprises is the seed
of industrial growth and while process germinates in the small enterprises.
This sector is the next only to agriculture in providing opportunities for
gainful employment. Study also revealed that the small scale industries often
provide the soil and opportunities for innovation, research and increasing
efficient ways of doing business. According to the author, the empirical
evidence of research studies and over all trends has repeatedly shown that the
small scale industry is competitive on its own.
Mali (1998)79 in his study has observed that small and medium
enterprises (SMEs) and micro enterprises have to face increasing competition
in the present scenario of globalization, they have to specifically improve
themselves in the fields of management, marketing, product diversification,
infrastructural development, technological up gradation. Moreover, new small
and medium enterprises may have to move from slow growth area to the high

51

growth area and they have to form strategic alliance with entrepreneurs of
neighboring countries.
Sengupta (1998)80 suggested that technology management be
recognized and calls for its upgradation in the dynamic environment of global
competition. The paper throws light on the technological developments taking
place in different sectors like banking, information and telecommunications,
manufacturing, etc. and reserves scope for further innovations. The author
called for improving the price and quality management, especially among the
Small and Medium Enterprises (SMEs) and further recommends that the
importance of environmental sustainability in relation to the new
technological innovations be not ignored.
Ismail R. and Jajri (2001)81 study growth, total productivity and
production function aspects of small and medium enterprises (SMEs) in the
Malaysian manufacturing sector. Authors assert that SMEs play an important
role in generating employment and supporting the large scale enterprises. In
general, the results from the analysis in this paper reveal that SMEs have been
benefited from technological progress by looking at their TFP except for
some groups, where TFP is low. Further, among SMEs growth rate of output
was found maximum in metal product industries and Cobb-Douglas
production function estimates show that in most of the categories of SMEs,
return to scale shows an increasing trend.
Dasanayaka (2011)82 conducts a study pertaining to global challenges
for SMEs in Sri Lanka and Pakistan in comparative perspectives and found
that small and medium scale enterprises/industries (SMEs) function as a
lifeline in informal sectors of Pakistan and Sri Lanka due to their immense
contribution in areas such as employment generation, exports, equitable
income distribution, social stability, efficient domestic resource usage and
52

regional development. However, a large number of SMEs in both countries

are struggling to survive in today's global competitive market. In spite of the
various policy reforms, establishment of SME related apex bodies, incentives
and assistance offered by the national governments in both the countries,
SME sector has suffered on many fronts. Author suggests coherent policies
and strategies to develop SME to their full potentials both in Sri Lanka and
Pakistan under intense globalization move.
Dixit and Pandey (2011)83 applied cointegration analysis to examine
the causal relationship between SMEs output, exports, employment, number
of SMEs and their fixed investment and India's GDP, total exports and
employment (public and private) for the period 1973-74 to 2006-07. Their
study revealed the positive causality between SMEs output and India's GDP.
Venkatesh and Muthiah (2012)84 found that the role of small &
medium enterprises (SMEs) in the industrial sector is growing rapidly and
they have become a thrust area for future growth. They emphasized that
nurturing SME sector is essential for the economic well-being of the nation.
IV. MICRO, SMALL AND MEDIUM ENTERPRISES:
Dinesha (2008)85 describes the importance of MSMEs and its
contribution to social and economic development objectives like labor
absorption, income distribution, rural development, poverty eradication,
regional balance and promotion of entrepreneurship. The main finding of the
study is that industry and government agencies can play a significant role in
educating small units about the changes in the business environment and the
necessity of going in for technological upgradation to succeed in the era of
globalisation, liberalisation, WTO regime, when the United States and
European Union economies are slowing down. The Chinese economy is
posing ever increasing competition.
53

Sivalingam (2008)86 analyses the performance of micro and small

enterprises in Tamilnadu for the period of 1991-92 to 2007-08 by applying
regression model. The results based on the trend line show an annual average
increase in MSME units, investment, employment and production. However,
changes are visible in textile, leather and automobile sectors due to pressure
of competition from domestic and international market. Further, analysis
shows micro and small enterprises have recorded good performance, and are
likely to meet the expectations of the planner in future as far as employment
generation is concerned. Hence, the policy interventions should be based on
support of infrastructure, direct catalytic subsidy, technical, information and
marketing.
Sonia and Kansai Rajeev (2009)87 studied the effects of
globalization on Micro, Small and Medium Enterprises (MSMEs) during pre
and post liberalization from 1973-74 to 2008-09. They used four economic
parameters namely number of units, production, employment and export and
interpreted study results based on Annual Average Growth Rate (AAGR)
calculation. AAGR in pre liberalization period (1973-74 to 1989-90) was
higher in all selected parameters than that of post liberalization period (199192 to 2007-08). They concluded that MSMEs failed to put up an impressive
performance in post reform era.
Singh (2010)88 conducts a study of rail coach factory, Kapurthala and
its micro, small and medium ancillary units in Punjab, and computes annual
compound growth rate, using primary and secondary data and finds that
Punjab's industrial scene is mainly dominated by MSME's working as
ancillary units for various parent firms. RCF and its ancillary units have
encouraged employment generation in Punjab. Further there is no significant
wage difference between small and medium units but significant wage

54

difference was between micro and small units on the one hand and between
micro and medium units on the other. However, these entrepreneurs are not
fully aware of the various forms of IPRS. Punjab government has taken
various measures for the development of these units for multiple reasons like
employment generation and promotion of entrepreneurship. The government
of India is also contributing a great deal by dedicating it the rail coach factory
to boost the economy of Punjab. There is a need of continuous research in this
area which justifies the present study.

55

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